The first half of 2009 saw a dramatic slowdown in the number of cross-border M&A deals involving emerging market companies buying assets in the developed economies.

According to KPMG's Emerging Markets International Acquisition Tracker (EMIAT), there were just 70 such deals in the first six months of the year; exactly 50 percent down on the latter half of 2008, and the lowest six month total since the first half of 2005.

The collapse in Emerging-to-Developed (E2D) deals comes six months after a similar decline was seen in the number of Developed-to-Emerging (D2E) deals, which fell from 446 to 360. That decline continued in this latest period with deal totals falling back once more to 306.

The one bright spot within those numbers comes from China. While most of her emerging markets counterparts have struggled, China's deal activity has now remained remarkably constant since the beginning of 2007. Sixteen E2D deals in the past six months may not sound a lot in absolute terms but this does demonstrate admirable resilience in the context of plummeting deal numbers elsewhere.

While the global decline in E2D deals was to be expected — reinforcing the point that the emerging markets were not immune from the ravages of the credit crisis — KPMG commentators remain upbeat for those markets' future outbound M&A prospects, pointing to the fact that more strategically important deals are now being made and that activity between the emerging markets themselves remains strong.

For the purposes of the EMIAT, deals are monitored between a basket of 12 developed economies and a basket of 11 emerging, high growth economies, using data sourced from Zephyr*.

Commenting on the findings, Ian Gomes, Chairman of KPMG's High Growth Markets practice for KPMG in the U.K, said: "Taking the latest EMIAT figures purely at face value may not give you the full picture. On the face of it, 70 deals seems like a paltry return for the world's main emerging economies. However, there are some very strategically important deals in there — and some very valuable deals. As some governments urge their corporates to become more selective and strategic in their acquisitions, this may be the shape of things to come as far as the EMIAT is concerned; reflecting a feeling that less is more."

"The other thing to bear in mind is that there is an awful lot of deal activity going on between the emerging markets. Much of this takes place away from the lens of the Western media in particular and so can often go unnoticed. It could be argued that by doing this, many trade buyers are returning to the developmental step which they missed out first time around. Economic conditions were so benign back then that it made sense to go straight for developed market acquisitions. Now that conditions have changed, it feels like they're revisiting possible acquisitions in other emerging markets, across Asia, Africa and Latin America."

At a country level, India is the big talking point of the latest EMIAT, recording just ten E2D deals. India has been the most acquisitive of the emerging markets since the first half of 2004 but it has now relinquished its usual crown to China (16 deals) and has even been beaten back to fourth place behind Central & Eastern Europe (12 deals) and Russia (11). India's fall in the rankings is perhaps all the more spectacular for the fact that it registered 63 deals in the corresponding period last year.

Despite this, India comfortably retains its place as the most acquisitive nation overall, recording 410 E2D deals since the EMIAT began in 2003. China is a distant second on 179, followed by the Middle East on 145. The U.S. remains the ‘destination of choice' for E2D deals with 351, followed by the U.K. on 250.

Looking at the D2E deals, 4711 deals have now been registered since 2003 and over a quarter of them have been deals into Central & Eastern Europe, perhaps reflecting the fact that this is an easier ‘cultural fit' for some of the developed market acquirers. Behind CEE, China can lay claim to 1018 inbound deals, followed by India on 713.

Alan Buckle, Global Head of Advisory at KPMG, commented: "India provides a perfect example of why it would be wrong to write off emerging markets' cross-border aspirations at this stage. While currently quiet in deal terms, its economy is still growing, there is post-election optimism, banks remain liquid and finance is available for the right deal. Ambitious companies are awake to the fact that valuations are dropping. They continue to look abroad but are cautious after witnessing the very public travails of their own national champions in their overseas ventures. This caution will not last forever."

"Meanwhile, the way in which the Chinese have bucked the trend of falling deal numbers is nothing short of remarkable, considering what the global economy has thrown at all prospective trade buyers in recent times. The recent forays by the Chinese into the Australian natural resources sector also demonstrate the impact the Chinese government is having on its own corporate base, urging them on to clinch more strategic deals. The resulting media debate reminds us that these E2D deals retain their ability to polarize opinion and that — despite their reduced number — they are likely to remain an important part of the M&A scene for some time to come."